With the election looming, we’re all anxious about what might happen. On a personal note, I’m looking forward to finally getting a break from the campaign ads that have flooded every television channel.
Both candidates have promised policy changes that, if implemented, could affect us in significant ways. But regardless of who wins, there are risks to your finances post-election.
Here are the five biggest risks that you should pay attention to as we enter the post-election season.
1. Not finishing your education
Often, people debate on when (or if) they should go back to school or continue with education. Is it a worthwhile investment considering the cost and the risk of a potential recession?
The answer is almost always a unanimous “yes.” Continuing with your education is a good decision overall as long as it’s something you’re passionate about. It could enhance your earning potential.
If you already have student debt, consider taking more to invest in your education. Student loan forgiveness is a powerful tool to use, and I think the tax bomb will be eliminated at some point.
The pandemic has clearly shown the advantage of having professional credentials. Most professionals have been able to maintain their incomes and positions and even thrive through the pandemic.
On the other hand, unskilled workers, especially in the hospitality and tourism sectors, have been hard hit.
So, there’s every reason to use this time to finish your education and get more credentials if you have the opportunity. You’re almost always better off with more education, no matter what the economic outlook might be.
According to the Federal Open Market Committee forecast, the U.S.’s inflation rate is expected to rise slightly to 2% and then remain relatively stable. But inflation might not even be something to worry about.
There have been trillions of dollars of stimulus pumped into the economy, plus the Federal Reserve has bought up all kinds of bonds, further infusing the economy with money.
There’s also pent-up demand to get out of your home and visit loved ones, travel to places you haven’t been able to go for a while, or even take a vacation.
Well, I’m not sure how these combined factors might affect the inflation rate overall. Even if there is a rise in inflation, it might not be something you need to worry about if you have student loan debt.
First of all, increased inflation might be beneficial for borrowers because it devalues the amount you owe without any work on your part.
How can you take advantage of the current situation while also preparing for a potential rise in the inflation rate?
Well, now is an excellent time to buy a house. If inflation happens, purchasing a home would be more difficult because of the increased interest rates.
Another option to take advantage of inflation is negotiating a multi-year rental contract if you’re not ready to buy a home. The demand for rental space, along with the rent rates, has fallen to an all-time low across the country.
Now is a good time to take advantage of the discounted rent rates to negotiate some great deals.
3. Economic decline
The overall expectation is that the economic outlook will remain positive regardless of who wins the election. But with the pandemic still influencing markets, there is a chance of an economic downturn – especially if a vaccine isn’t found soon enough.
An economic decline would mean that some of you might be at risk of losing your jobs. If that’s the case – if your job is economically sensitive – then I’d suggest that you be careful about making big purchases.
Also, if you have loans, make sure the monthly installments are comfortable so that you can make the required payments even if you lost all or part of your income.
Consider refinancing to a longer term if you’re concerned or want some wiggle room in your budget. And remember, you can refinance your student loans as many times as you want.
4. Student loan reform
Student loan reform likely won’t affect you at all if you have private student loans. No matter who wins the election, there could be a one-time student loan forgiveness for federal borrowers.
Looking at each candidate’s proposals, there are pros and cons to consider. Some limit forgiveness to borrowers over a certain income, while others propose a blanket repayment plan based on income. But what the final version of reform will look like is anyone’s guess.
I don’t think there will be a change in student loan interest structure, but you could see an extension of the student loan payment freeze beyond December 31, 2020.
Student Loan Planner consultants talked in detail about what they think will happen to your student loans after the election in last week’s podcast. I’ll be sharing more with you on the expected student loan reforms as the details become clearer in the coming weeks, months, and years.
5. Not investing or saving enough
While most of these factors that could impact your finances are external, the decisions you make about your finances are the most significant determining factor.
No matter who wins the election or what happens to the economy, you must have a long-term plan for your finances. That means setting up your investments and retirement funds and getting a plan to repay your student loans.
For instance, if there’s a stock market crash, the low prices will mean that you can buy more shares for the same amount of money. That gives you an advantage in the long run when the economy improves, and your investment grows.
At the end of the day, what you do with your life and the decisions you make carry more weight in your financial well-being than the effect that any of the political leaders will have overall if elected.
With sound financial planning, you can minimize the impact of any negative policy changes made by either of the candidates or an economic downturn.